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Gilt Groupe Raises $138 Million from Softbank and Others for Growth, Acquisitions

May 08, 2011
All Things Digital
by Tricia Duryee

Gilt Groupe, the New York-based flash-sales site that offers discounts on apparel, travel, home decor and other categories, has raised a whopping $138 million in capital.

Participants in the fifth round include the Japanese-based telecom conglomerate Softbank Group as well as Gilt’s previous investors, General Atlantic and Matrix Partners. Other new investors include: Goldman Sachs, New Enterprise Associates, Draper Fisher Jurvetson Growth, Pinnacle Ventures, TriplePoint Capital and Eastward Capital.

Softbank’s involvement is two-fold.

Not only will it be contributing $62.5 million of the round, which will all be going toward Gilt’s U.S. operations, it will also invest a smaller undisclosed amount into Gilt Groupe Japan. The two companies will each own 50 percent of the joint venture.

In all, Gilt has raised $240 million. The fifth round values the company at roughly $1 billion before the round is taken into account. The round was first reported in a regulatory filing last week.

Gilt’s CEO Kevin Ryan, who is known for being one of the first 20 employees at DoubleClick, launched the members-only site in November 2007. In roughly four years, the company has created a name for itself as the online destination for discounts on brand-name luxury items. Targeting affluent young professionals, the site lures consumers in with beautiful photography and creates a sense of urgency because the deals are gone once the inventory sells out.

In addition to selling men’s and women’s apparel, it has branched out into new markets, such as children and home decor. It has expanded into travel and local deals through its Jetsetter and Gilt City brands respectively. [Read our Q&A with Ryan here.]

The funding will go toward launching new verticals and making acquisitions to get into new markets. In the next couple of months, Gilt has committed to launching a gourmet food site and a full-priced men’s online retail apparel site, but others are also on their way.

Ryan said the round ended up being bigger than they expected and they could have easily raised up to $200 million. But there’s a delicate balancing act between raising enough and diluting the company too far.

“It will be great not to have to do this for a long time,” he said, adding that this will be the last time the company raises a private round.

The next step will be an initial public offering. ”At some point, but we have no specific plans. It’s not happening any time soon,” he said.

Softbank, which operates wireless and broadband networks in Japan and has investments in hundreds of companies–including Yahoo! Japan–will contribute other services and intangible property to help expand what Gilt has already started in Japan.

“It’s not that it wasn’t going well. We are the flash-sales leader in Japan, but when we started talking to them, it was clear that they would add value,” Ryan said. “We don’t need a partner, but we were convinced that they would add value and be a great partner. We are a leader, but we want to be a lot bigger and it’s sometimes hard to be as successful in Japan without a partner. I think that will help.”

To be sure, the round will be helpful in establishing Gilt from among the copycats flooding the market.

The company previously said its revenues would total up to $500 million for the fiscal year ending June 2011. Ryan would not provide an update on that figure, but said the overall company, which has 670 employees and 100 job openings, is not yet profitable.

Its business model is not too dissimilar to well-funded Groupon or LivingSocial. Other direct competitors, such as Rue La La and HauteLook, have recently been acquired by eBay and Nordstrom respectively. And in the past couple of weeks, one of its closest competitors, ideeli, raised $40 million in capital. E-commerce giant Amazon just began another direct competitor called MyHabit. Additionally, Vente Privée, the big French flash-sales site, which already has billions in revenues, is reportedly launching in the U.S. in the coming months with an announcement slated for this week.

Here’s the full press release:

Gilt Groupe, Inc. Announces $138 Million in New Funding
Accelerates Business in Japan with Establishment of Joint Venture with SOFTBANK

NEW YORK, NY, May 9, 2011 – Gilt Groupe, Inc., an innovative online shopping destination, today announced it has raised $138 million from new and current investors. The new financing will be used for various growth initiatives, including acquisitions, new business categories Gilt plans to launch, as well as the acceleration of growth in existing categories and geographies.

Participants in the financing round include SOFTBANK Group; Gilt Groupe’s previous investors, General Atlantic and Matrix Partners; as well as a syndicate of new investors including Goldman Sachs, New Enterprise Associates, Draper Fisher Jurvetson Growth, Pinnacle Ventures, TriplePoint Capital and Eastward Capital.

SOFTBANK Group, a Japanese telecommunications, internet and media conglomerate, has invested $62.5 million into Gilt Groupe. In addition to that investment, SOFTBANK Group has made additional contributions into Gilt Groupe Japan, of cash, services, and intangible property to establish a joint venture between the two companies, representing a 50% stake for SOFTBANK Group in that business. The other partners invested a total of $75.5 million into Gilt Groupe in the US.

“We are very excited about each of the partners we’ve chosen and the opportunities this financing creates as we continue to expand into additional categories as well as make strategic acquisitions to complement existing business lines,” said Kevin Ryan, Founder and CEO, Gilt Groupe, Inc.

In the next several months Gilt will launch a gourmet food site as well as a full-price men’s online retail store as the Company continues to expand beyond its original business of off-price apparel and accessories through the flash sales model. In November 2007, Gilt Groupe launched as an invitation-only site for coveted women’s apparel and accessories. Today, Gilt Groupe has added business lines in home (Gilt Home); children (Gilt Children); men’s apparel and gear (Gilt MAN); vacation travel (Jetsetter); local services and experiences (Gilt City), and has founded the leading flash-sale site in Japan (Gilt Groupe Japan).

“I am very excited to see further expansion of Gilt’s offerings to Japanese customers,” said Masayoshi Son, Chairman and CEO of SOFTBANK Group. “With our Internet technology and Gilt’s innovative service, we look forward to working together to bring the Japanese market to a new stage of online shopping.”

”In just a short amount of time Gilt has successfully brought the flash sale model to Japan as well as introduced local city experiences through the launch of Gilt City Japan,” said Peter Glusker, CEO, Gilt Groupe Japan. “This newly formed joint venture with SOFTBANK will allow us to expand our offerings in Japan at a faster rate as well as benefit from SOFTBANK’s unique set of assets and expertise in Japan.”

To date Gilt has secured over $270 million in total financing since establishing operations in November 2007.

About Gilt Groupe, Inc.

Gilt Groupe, www.gilt.com, is an innovative online shopping destination offering its million members special access to the most inspiring merchandise and experiences every day, many at insider prices. Gilt continually searches the world for the most coveted brands, including fashion for women, men and children, home décor, hotels and travel experiences on every continent, and unique activities in a growing list of cities and destinations. We believe that every day is an opportunity to inspire and be inspired.

Gilt Groupe Japan, www.gilt.jp, was launched in March 2009, and has established itself as the leading flash-sales site in Japan with over 600,000 members.